The fire this time

Bolivia’s political standoff has turned deadly. Even if the bloodshed brings a truce, the underlying fissures look harder than ever to mend

  • By Lucien Chauvin
  • 09 Oct 2008
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By Lucien Chauvin

Bolivia’s political standoff has turned deadly. Even if the bloodshed brings a truce, the underlying fissures look harder than ever to mend

Almost three years since historic elections brought the firebrand socialist Evo Morales to power, Bolivia is buckling under the strain of political turmoil and rising violence by the president’s supporters and opponents alike.

The election of Morales, Bolivia’s first indigenous president, in 2005 was a genuine turning point in South America, as long-marginalized native peoples took power for the first time – through the ballot box. But increasingly, the question facing Bolivia, a country of deep ethnic and geographical divisions, is how they will wield that power, and whether Morales can redress the historical grievances of Bolivia’s indigenous majority while keeping his country from descending into chaos.

Violence erupted after Morales decreed on August 28 that a referendum would be held next January on a new constitution. The changes are opposed by most lowlanders, whose privilege Morales derides, arguing they are intent on denying indigenous Bolivians their rightful share of the country’s natural gas, minerals and land. Landowners accuse the president of trying to turn the country into a fiefdom of Venezuela and Cuba.

As violence spreads on both sides, fears are growing throughout the region that Bolivia’s crisis could trigger if not civil war, then intense conflict across its rebellious tropical lowlands, which are an important source of natural gas and food for neighbouring countries.

For interior minister Alfredo Rada, everything hinges on the constitutional reform. “The principal issue facing Bolivia is the resolution of the debate around the new constitution,” Rada tells Emerging Markets in an interview. “The other points on the table are secondary.”

Rada says the draft constitution, which he expects to be approved by a wide margin, creates conditions of equality that have been missing from Bolivia since colonial days and its nearly 200 years of independence. “We are resolving historic problems in a peaceful and democratic way. Bolivians will show that the ballot box and not violence is the way to create a more equitable country,” he says.

The 411-article constitution was approved by the assembly under cloudy circumstances, with delegates moving from the initial site of the deliberations in Sucre, the country’s official capital, to the neighbouring Oruro state. While many questions remain about the content, the immediate issue involves the government’s plan for putting the proposed document to vote.

Eastern anger

Morales’ referendum call was slammed by his opponents as illegal. The resulting impasse sparked violence in Pando and the other states that have been clamouring for greater autonomy, including Chuquisaca, Santa Cruz y Tarija. These eastern states are collectively known as the media luna (half moon) region, where most of Bolivia’s oil and gas reserves are found.

The extent of the internal divisions is hard to overestimate. Former president Carlos Mesa, whose resignation in 2005 opened the way for Morales’ election, says the proposed constitution, if approved, would create an avalanche of problems that could make Bolivia ungovernable for years to come. “The real issue is the proposed constitution, which is inconsistent and illogical. It is more about settling the score for the past 500 years than creating a social pact for governing all Bolivians,” says Mesa in an interview.

Mesa, though optimistic that the immediate conflict between the government and eastern state governors will be resolved, says this is beside the point. “I think that an agreement will be signed by the governors and the Morales government, but this is not the real issue.” 

He warns that the national charter drafted by the assembly represents the dissolution of Bolivia as a nation: recognizing 37 different indigenous nations as forming part of the Bolivian state and giving them control over natural resources is akin to dividing the country into mini-nation states, he says.

Moreover, Mesa decries the government’s divisive practices – specifically provisions in the draft constitution that require government officials to speak an indigenous language, in addition to Spanish, or that call for half the members of public institutions, such as the Constitutional Tribunal, the country’s highest court, to be of indigenous descent.

“If you do not speak a second language, and nearly 70% of Bolivians are monolingual, you can’t hold a public job. Excluding two-thirds of your population is discrimination,” he says.

“The government says the opposition wants to divide Bolivia and that it promotes racism, but this is not the story. I am not denying that there is racism in the eastern region, but this proposed constitution is completely discriminatory, providing privilege based on skin colour and language,” he adds.

Crisis management

During Morales’ tenure, the country has lurched through a series of crises, and Bolivians have gone to the polls in two nationwide referendums called by the president to define the country’s future. The government has, meanwhile, renationalized strategic industries, primarily hydrocarbons, and moved decisively out of the United States’ sphere of influence.

A referendum was held in July 2006 to seat an assembly to rewrite the country’s constitution. Morales’ left-wing Movement to Socialism (MAS) easily won those elections, taking 132 of the 225 seats. A second referendum, this one on whether or not the president and state governors should stay in power, was held this past August, with Morales again claiming an easy victory. He received 63.5% of the votes, 10 points more than in his presidential win. Also ratified in the election were most of the governors from eastern provinces who have been demanding greater political and economic autonomy.

The August vote should have solidified Morales’ power, but instead added to the already high levels of instability. Pro- and anti-Morales forces squared off in September, with the worst violence coming in the Pando state. At least 30 people are dead, though human rights groups say others remain missing and are presumed dead. Martial law was temporarily decreed in Pando, and the state governor was arrested for allegedly inciting the violence. 

The Morales administration dismisses many of the accusations against it by pointing to grassroots support, as well as robust macroeconomic numbers. GDP is forecast to expand above 5% in 2008 – it grew by 6% in the first quarter – exports will easily top $5 billion, and the administration estimates a fiscal surplus of 2%. Exports were $4.5 billion through August, compared to $4.8 billion in all of 2007. Inflation through August was 10% but has been trending downward since May, and international reserves came close to $7.5 billion.

International interest

There are also signs of increased foreign interest, after some reticence over the nationalization of hydrocarbon resources. India’s Jindal, for example, is moving ahead with its $2.1 billion project to mine the Mutun iron ore deposit, and its local hydrocarbon unit, GTL International, is exploring five lots. Four of these are in a joint venture with the Bolivian state company, YPFB. “We are confident that our projects will move forward,” says Luis Kinn, GTL’s director in Bolivia. “The political problems will be sorted out at their own pace and should not interfere.”

There have also been overtures from Russia’s Gazprom to invest upwards of $4.5 billion in natural gas projects – this would equal Bolivia’s 2008 export totals – and Venezuela and Iran have also pledged huge sums.

Rada maintains Morales’ government has decisively turned the economy around. “We have restructured the economy to benefit Bolivia and not only companies operating in Bolivia. We have record export earnings and foreign reserves, which are providing us with important institutional support,” he says.

But Mesa argues that favourable macroeconomic numbers are a function of international prices for raw materials and have nothing to do with economic management. “The Bolivian economy would be growing if Mickey Mouse were president, because 95% of the growth has to do with the price of natural resources,” he says.

Mesa and other opposition leaders are deeply troubled by deteriorating relations with the United States. The government expelled the US ambassador during the September crisis and appears ready to accept the end of preferential tariffs for exports to the United States. Bolivia, like other Andean countries – Colombia, Ecuador and Peru – has been able to export more than 7,000 products tariff-free to the United States since the early 1990s under several unilateral US laws, the most recent known as the Andean Trade Promotion and Drug Eradication Act (ATPDEA).

The US government, which is enacting a free-trade agreement with Peru and has finished negotiations with Colombia, has warned Bolivia and Ecuador that it might not renew the ATPDEA. Five high-powered groups, including the US Chamber of Commerce and National Association of Manufacturers, on September 25 publicly called on the Bush administration to end trade benefits with these two countries.

Rada claims the loss would not really matter to Bolivia, “because most of our exports are in the energy sector. We want to maintain relations with the United States, but they need to be fair and just.”

John Womack, a Latin American expert at Harvard University, says the elimination of the ATPDEA might actually be a positive move in the long run. “The problem is not with Bolivia but with US policy in Latin America. The US government needs to reconceptualize its relationship, because Bolivia is simply not a threat to the United States,” he says.

Yet Mesa counters that dependence on the US is simply being replaced by an even stronger reliance on Venezuela and other countries that are part of Hugo Chavez’s circle of allies, primarily Iran and Russia. “Hugo Chavez has interfered more in Bolivian internal issues in the past few weeks than the United States has in our history,” he says.
  • By Lucien Chauvin
  • 09 Oct 2008

All International Bonds

Rank Lead Manager Amount $bn No of issues Share %
  • Last updated
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1 JPMorgan 144.72 488 10.06%
2 BofA Securities 116.53 399 8.10%
3 Citi 111.31 395 7.74%
4 Goldman Sachs 88.15 252 6.13%
5 Barclays 75.38 304 5.24%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $bn No of issues Share %
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1 Deutsche Bank 8.33 35 7.62%
2 BofA Securities 7.00 27 6.40%
3 UniCredit 6.71 30 6.14%
4 BNP Paribas 5.11 35 4.67%
5 HSBC 5.06 31 4.62%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $bn No of issues Share %
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1 Credit Suisse 3.10 7 10.48%
2 Morgan Stanley 2.55 14 8.63%
3 JPMorgan 2.53 18 8.56%
4 Goldman Sachs 2.43 15 8.20%
5 Citi 2.07 16 6.99%